Saturday, July 11, 2015

Money Speaks Louder Than Words (or rescue programs)

Assuming that Alexis Tsipras can get a deal (and implement it!) in the next few days, which I hope, he might consider the following.

Tsipras has demonstrated an unbelievable talent for motivating the Greek people; even those who would normally not vote for him. The evening rally after the referendum is but one testimony to that fact.

What if Tsipras, upon completion of a deal, were to stage the rally of his life. A rally to appeal to the patriotism of Greeks in order to motivate them to bring their money back to bank accounts? My best friend in Thessaloniki (Yiannis, the Marxist) has refused my appeals over the last months to take his money out from his bank. He asked me what would be the purpose. I told him that the purpose would be that he keeps the value of his savings. He replied what his savings would be worth if the country went down the tubes? What if everyone did that?

Is Yiannis the only Greek who thinks that way? I could see a rally where Tsipras heats up the Greek psyche that the best way for the banks to get out from under the pressure (or blackmail, as it was once referred to) of the ECB would be if Greeks returned their money to the banks. He could credibly assure Greeks that their money would be safe, owing to the deal with the Institutions in place. It would just be a matter of firing up confidence among Greeks that they can do something to help themselves. It sounds far-fetched but having witnessed Tsipras' rallying skills over the last months, I think he might be able to pull it off.

The next thing Tsipras could ponder is how Greece can get some of the Greek money stashed away in foreign bank accounts back into the country, either as domestic deposits or, even better, as investments in the real economy. A tax amnesty would not do the trick if nothing else changes. However, as soon as Tsipras figures out a way to offer attractive (and safe!) investment opportunities, Greeks will be the first ones to take advantage of them. Why would they keep their money at zero interest rates in Switzerland if they could earn attractive returns in their home country?

And the last point is that money which presently enters the country as unvoluntary loans from official institutions is replaced, partially, by money which comes to Greece voluntarily in the form of foreign investment. What does that take? Well, just like above: attractive (and safe!) investment opportunities!

Government austerity does not necessarily mean austerity for the whole economy. If money were to flow back into banks and into investments, that would have the same effect as if the government doubled its spending. Money is a fungible entity. It needs to get into the economy and be put to profitable use. Where it comes from is of secondary importance.

Churchill once said: "Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk. Not enough people see it as a healthy horse, pulling a sturdy wagon." Not until Tsipras begins to understand this will he be able to reach the place in history books which would be there for his asking.


  1. The very rally for the referendum that you refer to, is Tsipras' problem. He lost many confidence points with that crowd, which is still asking "what did we vote about?". Those who were keeping their money in bank, were for the most part, either those who had left small amounts inside or those who had been immune to the continuous fear of Grexit, because it didn't happen for 5 years. On the contrary, those who removed their money, are those who...didn't trust Tsipras...

    Big sums will not return as long as they fear Grexit. Tsipras' "word" doesn't mean much.

  2. Out of curiocity. Is there a historical example, where bank deposits went to a country that was under threat of losing 50% of their value? I don't mean under the leadership of a politican that hasn't kept a single promice in the last month. I mean with more credible politicians.

    1. There are examples that money was flowing into a country that was already highly debted (prob. more than Greece), offered very low debts and was stricken by a huge disaster. Yust read about Japan after the tsunami in 2011. Many Japanese felt obliged to help their country.
      This sign of national solidarity I completely miss in Greece, quite all the time since 2008.

    2. You are making a chicken-and-egg point. Bank deposits are under threat of losing a percentage of their value because people, instead of at least leaving their deposits there (not even to think about increasing them), take their money out. It's a vicious circle which sometimes cannot be stopped. In the case of post-Lehman Germany when a bank run was in the making, Chancellor and Finance Minister showed up on TV and guaranteed that all deposits were safe. Sort of like Draghi's "whatever it takes". The trick worked even though it was clear that the German state could never have complied with that guarantee.

      I am not saying that a rally like I suggested would work. All I am saying is that if there is anyone in Greece today who can arouse the Greek people, then it is Alexis Tsipras. I have seen passionate Greeks on TV who said they won't mind going back to stone age if that's what it takes to show the Northeners that Greeks are a proud people. Well, I am not suggesting going back to the stone age. That's a negative tenor. The positive tenor would be: "We will show them! We will return our money to the banks! We will buy Greek products!" And if wealthy SYRIZA party members were to be seen on TV as they carry their suitcases full of money to the bank, that might be of support, too...

    3. To Roger,

      It is completely different to be highly indebted and completely different to face collapse to another currency. If it is of any consolation, Greeks kept money in banks during previous bankruptcies, because they didn't know about them or during the civil war.

      To Mr. Kastner

      I think you haven't still grasped the hit that Tsipras took in the last days in his credibility and political career.

  3. Mr. Kastner,

    I apologize for not remembering everything at once, but it is one of my defects that accompany age.

    For your Tsipras' appeal to the crowd to have a minimum chance of success, after the shock that the crowd had with the referendum, it would be best, if the goverment gave the example to the people.

    I don't have the time, to search in detail, but indicative, these are data of 2013 for some of todays' SYRIZA ministers and MPs. The sums you can see, are the officially declared ones and their bank deposits are either in other european countries or in USA:

    So maybe, before asking the man on the street to risk his money based on Tsipras' word, the SYRIZA ministers and MPs should give the example and bring their money to greek banks. This would certainly be much more convicing than Tsipras giving his word.

    1. That sounds like an excellent idea to me and would give politicians a chance to lead by example!

    2. Mr. Kastner,

      It isn't my own idea. If you could read daily comments by Greeks in newspapers or blogs, you would see that this is a common question. "Why should i believe Tsipras that my bank account is safe, if the FinMin himself, has his money in USA?"
      Rest assured, that the politicians know about this idea too, but they don't want to risk their money, because even they don't trust their own goverment. When the bank holiday was imminent, the journalists caught on camera the SYRIZA MPs being the first running to the ATM that exists inside the parliament.

  4. >"The evening rally after the referendum is but one testimony to that fact."

    I do not see it that way because:

    a) There is a considerable number of people who did not support him (including ex. FinMin who preferred to be absent).

    b) Some of those in parliament who voted yes probably have thought that giving him the mandate to negotiate again does not lose anything. It will suffice to vote no when the legislation will have to be accepted.


    1. I read that some who voted yes in parliament are on record as saying they'll vote no to the legislation - no doubt Schaueble has read the same - but who would trust a Greek politician.

      Mr Kastner

      Could a deal be structured that would reward Greece for implementing reforms, eg "sell of that old airport and we'll release €x billion; and 'get rid of the closed professions' and we'll release €y billion' etc.

      Also assuming the ECB resumes funding the banks how long do you think it will take too lift the various capital controls.

    2. "Could a deal be structured that would reward Greece for implementing reforms, eg "sell of that old airport and we'll release €x billion; and 'get rid of the closed professions' and we'll release €y billion' etc."
      That is the kind of deal I hope for as it is the kind of debt reduction with chances to get broad, even public support in Germany.

    3. How long will capital controls last? Very simple: until they are no longer necessary. When are they no longer necessary? When depositors have the confidence that their money at the bank will be safe and disposable. If the ECB came out tomorrow and said that they guarantee all deposits at Greek banks, "whatever it takes", then there would be a tsunami of money flowing into Greek banks because they pay higher interest rates than elsewhere in Europe. The ECB would never have to perform under its guarantee. Why won't the ECB do this? Because they have the same risk aversion as Greek depositors.

      To get back to your question: I think it will take quite a while, at least months but probably more than a year, until Greek depositors have built up confidence in their banks and in Greece's staying in the Eurozone again.

  5. Hi Mr. Kastner,

    I am not sure if you are following the news but the counter proposals being made are really offensive. I will get back you on Monday after all of this has ended one way or another.

    I have read the full proposal made by the Greek (French Composer) side.

    I am curious where this will all end.



  6. Yes, some of the counter proposals are really offensive. I think especially that rom Schäuble with "Grexit for 5 years". There you can feel that many bridges got burned. Schäuble actually kind of mirrors Varoufakis - but Varoufakis failed with his offensive strategy.
    I dont know how much it has to be taken serious and how much these are bluffs to rise the pressure in consultations.

    But I also feel a chance for a changing mood. Yesterday this video went viral in Germany and it gets quite popular. (Made from the same guys as "V for Varoufakis"). It shows both, some quite offensive lines in German Newspapers and the annoyance about it even in Germany.

    1. Oh, I forgot the name of the video. I it "UNSERE SCHÖNEN DEUTSCHEN EUROS – Our precious German Euros // EUROPA 2015":
      (switch on the english subtitles!)

    2. Is there a link to the video?

    3. Supplement: I suppose Schäuble overplayed today, as did Varoufakis before. The demands actually publicly discussed are not just offensive but cruel. I hope and suppose they will already fail inside Eurogroup due to internal protest.

      But the new numbers, a new financial demand of more than 80 billion for three years, are also quite shocking and hard to understand for me. An average of nearly 8.000€ is required for every Greek? What is behind these numbers, how much would remain in Greece?

    4. Hi Roger,

      Thank you for the video. It is quite comforting to get feedback that the gerneral public and media does not agree with sodimization of the greek people.

      In reply, i spent the weekend talking to people and informing them that the average german european does not approve of this and should not be genealized by the political motivations. I think the people understand, aside from extremists.

      As for the now 100 Bill euro, latest figure. Well, i am also not understanding either. (((((Mr. KASTNER))))) Please explain where th 100 BIL will go?

      From my figures from 2015 -2019 which is the 3 yr plan, 40 billion go to various debt repayments. I think that there is also a recapitalization of 30 billion for the greek banks. so 70. And then there is ESPA and Greek investment plan which got canceled when we failed to pay the imf + not close the previous deal successfully.

      I can not tell you how i felt when Schauble said the 50 billion gaurantee with greek assets. (the image that came to my mind which many cruel germans have said int he past was, a german flag flying over the acroplis or, just give us crete.)

      See my newer post in the latest article of Mr. Kastner.


    5. There are many points to debate, but two points I would call cruel:
      1. "The government needs to consult and agree with the Institutions on all draft legislation in relevant areas with adequate time before submitting it for public consultation or to Parliament." aka "we postpone democracy in Greece".
      2. I do not see the perspective for a better greek future. Without perspective there is no motivation to go the hard way. I thought that has been learnt in the last years.

      I have few problems with hard demands but they have to offer a perspective. But this is not hard or offensive, it seems cruel.
      I suppose the proposal is not yet done, the public discussion in Europe is just starting. And even if it should be done now it will have to get renegotiated quite soon.

    6. Cruel here or there: I suggest that people read up on Greece's massive bankruptcy in 1893. Foreigners literally took over Greece's financial governance. And a period of economic boom followed.

  7. > kleingut

    The widespead commentary about Greece often fails to take into consideration that as a lot of the money created by Greek borrowing is now in the euro area countries that were in Trade surplus with Greece and so, at least in part, the flow of money that starts the repayment of such trade deficit borrowing, is not from the deficit country but to the deficit country by purchases from that country.

    1. Of course, the Balance of Payments must balance. Money entered the country as foreign debt and left it as payment for imports and capital flight (most of it). To be specific: from 2001-10, 283 BEUR entered the country as debt. The trade deficit was 300 BEUR (!) during this period. Greece also had large foreign revenues from services so tha that the net current account deficit during this period was 'only' 197 BEUR.

      None of the money which was sent to Greece disappeared; it only changed owners. Exporters to Greece became major owners.

      The trouble is only that exports and an exporting country as a whole are not one and the same thing. Exporters were not paid by Greece in actual fact. Exporters were paid by the tax payers (in the case of Germany: their own tax payers) who sent bail-out funds to Greece so that Greece could pay their exporters. This is a bit simplifying because banks were in the middle of all this but the narrative holds.

  8. 1 of 2
    I have not read the terms of the deal yet but the issue of a trust fund for state assets has created sh.t storms throughout the internet, so - without knowing the details about it - I want to make some general comments.

    So bad an idea this is not. I can understand that it touches the nerves of a people when they think their nation is being stripped of assets but one should look at the merits of it. A similar proposal was made by a consulting firm in October 2011; it was names "Eureca".

    The major questions are how much revenues can be gotten out of these state assets and what are the revenues used for. Bavaria, until about 30 years ago, was Germany's poor state and a net recipient of domestic fiscal transfers. Then the government sold state assets en masse and used the proceeds to invest in Bavaria's future: education, R&D, high-tech industries, etc. And for some time now, Bavaria has been the largest net contributor to the domestic fiscal transfers and is arguably Germany's most prosperous state. That, to me, was a prototype of putting state assets to excellent use.

    The other extreme would be that the sales proceeds are exclusively used to pay down debt. That, to me, would not be a prudent use because, once that exercise is completed, the state assets are gone and there is not much in exchange. Much smarter to invest the proceeds and to pay down debt with the returns from those investments à la Bavaria.

    Only a few weeks ago, the Defense Minister was bragging that the military owned prime real estate worth 31 BEUR and was going to put it to use for the benefit of its staff. Doing that at a time when you claim bankruptcy on the other hand is only asking for trouble. Think about it!

    The major problem with any state-owned enterprise is political interference with the management of the company. Any politician who promises to protect a state-owned enterprise against political (or rather: party) interference is lying through his teeth. It simply cannot be avoided.

    I have written several posts on privatizations and/or foreign investment. The critical issue is to find the right kind of private investor. It's got to be someone who is there for the long term; who expands the business; who makes know-how transfer; etc. etc. A financial investor or anyone else who is in for the shorter-term financial gain is poison!

  9. 2 of 2
    Again, I have not yet read the terms of the deal but I take it from the comments that they are tough. Yes, what was reported on German/Austrian TV yesterday sounded very much like a humiliation. Interestingly, I am picking up tweets of a different flavor today. Examples:

    "Tsipras: The measures are recessionary, but we hope that putting Grexit to bed, means inward investment can begin to flow, negating them." And someone commented: "That's a key point, typically overlooked by the austerity/debt crowd. Glad that Tsipras is now making it!" (Greek professor)

    "Future generations of Greeks may yet thank Schauble if his threat of Grexit proves to have been the catalyst at last for meaningful reform." (American journalist)

    "So, if this was a coup, the name of the chief plotter was Tsipras and its vehicle, Syriza" (Greek professor)

    1. Mr. Kastner,

      Thanks for the above reply.

      In one aspect privatization is good as it bring in funds immediately and indeed allows for inflows from foreign investment. What i do not understand is why the troika is hung up on all shares being sold. For example OTE is now 90% private and the state maintains 10%. It is a successful business and why should the government not continue to gain profits and proceeds? This is where i am against troika.

      As for the rest of the privatizations such as the ports and airports, it has always "hit a nerve" and indeed it boils up the patriot in me that some things should be national, but after sitting and thinking with a cool mind, it is really not so bad.

      If i am not mistaken the winner for the bid of the airports is a German Company. If this company can be as successful as the German company that runs Eletherios Venizelos Airport, then the sale is a WIN-WIN-WIN. Win for the sale. Win for the company. Win for despratly needed improved peripheral airports. Win for local construction companies to reconstructed these airports. Win for the current public workers whom will be trained into the private workforce and above all, Win for tourism. Our biggest industry. In the end Win for the the State and Greece.

      I do not understand how politicians simply do not say this outloud. I assume they fear the replies of, "yes you are giving our public property for the big business to profit" I can't understand that statement. Privatizations do not mean they are given but are leased for 50 years or so. It still remains public, just run better than any public administration.

      Actually i re read the new agreement or the proposal of Tsipras which is what the new agreement is based on and it is not all that bad.

      What is bad is the troika insisting on which measures are lawed in first. First priority would be the privatiztions. As this takes time to implement and start producing for the country.

      Also TrainOSE, i have expressed my views for this sale as a priority and the advantages.

      I think the worst problem of all with all these austerity agreements of the last 5 years is the manner of presentation. What politicans should be doing is debunk the idea of austerity.


  10. With the support of various bleeding hearts social media groups, Greece is again claiming that the bad Germans are terrorizing them and instigating a coup. Forgotten are the heady days of February when Varoufakis in New York Times threatened to bring down the global financial world and Tsipras, inspired by him, told the Greeks that "we will play the tune, and they will dance to it".
    The game strategist and his sidekick had overlooked that the ECB had decided to introduce a megalo QE. It teaches me 3 things:
    - Public memory is short.
    - As a game strategist (or even tactician) Varoufakis could not win a game of noughts and crosses.
    - Do not get into a position where Tsipras has power over you.
    It seems like Schauble is aware of the last one, one could fear for Greece that investors are as well.

    1. I think the below interview with YV beautifully shows the mindset behind his strategies: he indeed wanted to destroy instead of re-construct!

  11. I read it and others, and maybe it inspired me to my previous lines. I have nothing against gamblers, if they gamble with their own money. People who gamble with gullible people's money I call crooks. Gamblers who double their bets each time they lose, well knowing the casino has a ceiling, I call losers. People who hit the ceiling loosing and ask for one more bet I call bad losers or crybabies.
    PS. If you see Varoufakis gamble as being on behalf of Varoufakis and not Greece, then he is a good game strategist, a good patriot he is not. He had the chances of win or draw, he got a draw, and Greece lost 30 BEUR and a lot of thrust.

    1. Nice correlation Lennard.

      Even now that he is out of office he continues his rhetoric. I was thinking time will show who and what he did.

      He has become completely annoying. Even now sidelined he continues to blabber on. And his blabber many times is not in the good of Greece's interests.


  12. I don't think YV wanted to destroy, he just didn't give hoot about the consequences for the rest of the world. It just exemplifies the policy prevailing in Syriza. Apres moi le deluge. Or the normal Greek attitude of "the only thing that count is ME".

  13. With the time I have the ever more growing impression that the deal is bad for both sides.
    The debtor countries are unhappy about the huge amount of money the have to ay again while the first two payments did not work. So they demand even harsher controls to make it work better this times. But these harsher controls are attacking the souverantiy of Greece so Greeks will try to sabotage it quitly or revolt openly.

    Perhaps these payments are the central big mistake?

    My ideas for a better deal:
    1. Much less or even no new direct payments for Greece. So Greek government has to live by its means.
    2. As proposed by Klaus: Declare bancrupt of finance system, afterwards take-over and refinancing by ECB als the Central Bank of whole Europe, so also of Greece. Afterwards the banks can reopen again, but the government has no control over banks at all (and they will stop bying new greek dept papers).
    3. Offer of debt reduction for "Troika-depts" as reward for succesfully implemented() reforms proposed by Troika.

    Advantages for Greece:
    - Perspective of real debt reduction, and finally a sustainable debt level.
    - Maintenance of the main national souveranity
    - Their "no"-vote gets honored

    Advantages for Debtors:
    - No more fresh money on a problem that was not solved by money two times before.
    - No need to play the controlling "bad ass".

    Disadvantage for Greece:
    - Government has to find its ways to earn enough taxes to pay its bills. IOUs get more probable (the Varoufakis-plan). Time will show the real value of the IOUs and if it could be a first step for new currency or not.
    - Greece has to deal with all other creditors by its own, they dont have Troika-money to by out other debtors.

    Disadvantage for all countries: As a Greek default gets more probable, the debtors should realize that public debts can default. So interests should steeply rise.

    1. Hi Roger,

      Unfortunately we are all passed on the above. And truth be said, mr. kastner's original position is the most correct. Correct change and government and infrasture changes in the managment of public workers and systems. Then when this is in place you discuss the debt. I do not disagree with Schauble too much who is now confronted byt eh IMF. That the debt is sustainable. Well not 100%. But the truth is inbetween. Mr. Kastner's ideas are well somewhere in the inbetween.

      We are already very close to a balnced budget and we had a slight surpluss which is gone but giving debt right down with out proper reform is pointless.

      It must happen now. Now or never. Debt restructuring is on the table. Leave there help Greece rebuild and reboot and at the end of two years implementation you give the reward. Privatizations is the key for me.

      Many say now that Samars was dropped by Merkel because that he did not have the strength to make change. She sees possible change in Greece through tsipras even if he is from the left.

      Papahelas wrote a great article today (Link below), where we needed to see the abyss of the cliff to to realize what is necessary. 80 % now say yes to the vote and changes. We need to dodge the bullet of the new extreme left of syriza and move on. And maybe drop them of into the abyss.

      I have come to a conculsion as of late that everything is presentation. Tsipras has a charm which whoas people. With a leader change can happen. It will be hard but it is possible.

      Likewsie Germany also needs to change their presentation on how they say things. They have given nothing after 5 years to give people hope. Like Varoufakis said, if merkel came to greece and gave a support to tsipras and idea of hope people would not be so damn reluctant to make this work.

      Roger it can be resolved. There is much strength in Greece but ideas only from troika implemented on Greece can not be the only way. In the Feb agreement the new greek government was not allowed to make actions or laws without conscent. They ignored them on many issues. One successful one which Samaras table was debt owed to the government. It stated an allowance of 100 installments to debt to the government. Troika rejected. Tsipras put it foward. It worked. Now troika said ok. 2 need to dance to make things work.



      A must read: